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Disruptive Innovation in Education and Health Care

October 27, 2008 American Enterprise Institute www.aei.org/event1812

The Innovators Prescription:


How Disruptive Innovation Can Transform Health Care
Clayton Christensen Harvard Business School

cchristensen@hbs.edu

10/27/2008

Copyright Clayton M. Christensen

Disruptive Technologies:
A driver of leadership failure and the source of new growth opportunities

Incumbents nearly always win


Performance

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stomers ormance that cu Perf sorb can utilize or ab

Disruptive technologies

Entrants nearly always win

Time 10/27/2008 Copyright Clayton M. Christensen 3

Beat competitors with asymmetry of motivation


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1975 10/27/2008

1980

1985 Copyright Clayton M. Christensen

1990 4

Expensive failure always results when disruption is framed in technological rather than business model terms.
Tabletop Radios, Floor-standing TVs

Performance

Different measure Of Performance

Path taken by vacuum tube manufacturers

Portable TVs
Pocket radios

Time

Hearing Aids
or rs g e um min ns co nsu on n-co ns 2007 Innosight LLC N o io N ca s 5 oc

Time

Disruption in business models has been the dominant historical mechanism for making things more affordable and accessible, and for generating corporate and economic growth Yesterday Ford Dept. Stores Digital Eqpt. Delta JP Morgan Xerox IBM Cullinet AT&T Sony DiskMan Japan
10/27/2008

Today Toyota Wal-Mart Dell Southwest, RyanAir Fidelity Canon Microsoft Oracle Cingular Apple iPod Korea, Taiwan, HK
Copyright Clayton M. Christensen

Tomorrow: Chery Internet retail RIM Blackberry SkyWest, Air taxis ETFs Zink Linux Salesforce.com Skype Cell Phones China, India
6

The right product architecture depends upon the basis of competition


IBM Mainframes, Microsoft Windows
Performance

Compete by improving functionality & reliability


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Compete by improving speed, responsiveness and customization

Dell PCs, Linux


Time 10/27/2008 Copyright Clayton M. Christensen 7

Three Enablers of Disruption


Performance

Different measure Of Performance

Value Network
1. Si Te mp ch lif no yin lo g gy
Retailers Suppliers
Time
Copyright Clayton M. Christensen 8

Time

or 2. Business rs g e um in Innovation ns sum co n on n-co ns 10/27/2008 N o io N ca s oc

model

Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized

Performance

Experimentation & problem-solving

Probabilistic Pattern Recognition

Rules-Based

10/27/2008

Copyright Clayton M. Christensen

Molecular diagnostics, imaging technologies, and high-bandwidth telecommunications are important technological enablers for disruptive business models in health care
Complexity of Diagnosis and therapy

Im pr
Experimentation & problem-solving

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ine dic e M

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n ici ed M

ia g no se Pattern Recognition e

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ine dic e M

pr ec ise ly

Rules-Based

10/27/2008

Copyright Clayton M. Christensen

10

Hospitals are expensive conflations of three types of business models

SOLUTION SHOPS

VALUE-ADDING PROCESS BUSINESSES

FACILITATED NETWORKS

Consultingfirms Highendlawfirms R&Dorganizations Diagnostic&intuitive activitiesofhospitals


FEE FOR SERVICE

Manufacturing Education Foodservices Medicalprocedures


FEE FOR OUTCOME

Telecommunications Insurance EBay DLife SimulConsult


FEE FOR MEMBERSHIP

Market Understanding that Mirrors how Customers Experience Life

The customer rarely buys what the company thinks it is selling him - Peter Drucker
10/27/2008 Copyright Clayton M. Christensen 12

What is a business model, and how is it built?


THE VALUE PROPOSITION: A product that helps customers do more effectively, conveniently & affordably a job theyve been trying to do RESOURCES: People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition to the targeted customers

PROCESSES: PROFIT FORMULA: Assets & fixed cost structure, and the margins & velocity required to cover them
10/27/2008

Ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting, planning, etc.
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Copyright Clayton M. Christensen

Disruption occurs at the level of systems, not companies


Performance

Appliance Stores RCA, Zenith Component suppliers

Different measure Of Performance

Discount retailers
Time

Sony, Panasonic Component suppliers


Time

or rs g e um min s on nsu -c on n-co ns N o io N ca s oc

Powerful monopolies, network effects and stifling regulations are most easily broken through disruption
Performance

Appliance Stores RCA, Zenith Component suppliers

Different measure Of Performance

Discount retailers
Time

Sony, Panasonic Component suppliers


Time

or rs g e um min ns co nsu on n-co ns N o io N ca s oc